De Beers loses appeal
published: Friday, May 19, 2006
SASKATOON -- The Saskatchewan Court of Appeal took a little more than two hours Thursday to decide that a voting agreement between Cameco Corporation and Shore Gold Inc. did not violate the overall ownership interests within the Fort a la Corne (FALC) joint venture, the province's major diamond exploration project.
De Beers Canada, the operator of the multimillion dollar FALC diamond exploration project, went to the Court of Appeal to get a March judgment from the Court of Queen's Bench overturned and the voting agreement between Shore and Cameco set aside.
The panel of three appeal court judges upheld the March 30 ruling of Court of Queen's Bench Justice Darla Hunter and accepted the view of Cameco that it did not sell any ownership rights for the $10 million it was paid by Shore to gain Cameco's vote on the FALC management committee.
Shore Gold, which has the most to gain from the voting agreement that was upheld, issued a news release shortly after the ruling.
"This decision confirms Shore's previous belief that the voting agreement is a valid and binding agreement and we now look forward to putting this matter behind us and moving the FALC JV project forward," said Shore president and CEO Ken MacNeill, in the news release. "This was an unfortunate incident but we remain committed to working with our new joint venture partners to maximize the potential of the FALC JV project and the Fort a la Corne region as a whole."
Although Shore, through buying Kensington Resources, is now on an equal footing in the joint venture with De Beers with each having 42.245 per cent of the project, the voting agreement with Cameco essentially gives Shore a controlling 57.8 per cent of the votes at management meetings. (Cameco votes its own 5.51 per cent as well as the 10-per-cent carried interest of UEM Corp. which found the kimberlites originally and is now jointly owned by AREVA.)
Cameco's lawyer Bill Hood argued the money Cameco received in advance was compensation for the business risks Cameco was accepting in agreeing to the more aggressive exploration program proposed by Shore Gold to advance the exploration of the many diamond-bearing kimberlites that exist on the FALC joint venture lands.
Toronto lawyer Robert Harrison, arguing for De Beers, said that giving up voting rights for seven years is a "defined interest that has been sold or disposed of" and thus violates the original joint venture agreement.
In outlining the court's reasons, Justice Nick Sherstobitoff made reference to the difference in philosophy between Shore and De Beers and how Shore is more anxious than De Beers to move forward on techniques such as large bulk sampling of the kimberlites for diamonds. The judge said Cameco decided it wanted to vote with Shore on the more aggressive plan.
"They decided to exercise their right to vote by entering into a voting agreement rather than selling their vote," the judge said.
If De Beers accepts Thursday's ruling without further attempt at appeal to the Supreme Court of Canada, it will be required to pay the court costs so far incurred by Cameco and Shore Gold.
Despite the legal wranglings, representatives from De Beers, Shore and Cameco have had a management committee meeting for the joint venture this spring and approved a $43-million budget for this year.
